Bankers Take Offensive Against Card Rate Cap
WASHINGTON - With their credit card pricing suddenly under attack by Congress, bankers and their trade associations girded for battle Thursday against a ground swell of support for a cap on interest rates.
An unexpected Senate vote late Wednesday for an interest rate ceiling sent shock waves through the industry, which has depended on credit card profits to offset losses in other areas in recent years.
The stock prices of major card issuers - such as Citicorp, Banc One Corp., and MBNA Corp. - tumbled. And uncertainties about the value of securities backed by credit card receivables weakened that market.
Foley Behind Rate Ceiling
Keefe, Bruyette & Woods Inc. estimated those three companies together would lose $1.9 billion in 1992 revenue and $1.1 billion after taxes if the rate cap, as sponsored by Sen. Alfonse D'Amato, R-N.Y., were enacted.
Meanwhile, in the House Speaker Thomas Foley appeared to throw the weight of the Democratic leadership behind a rate ceiling because it is seen as aiding the middle class.
Mr. Foley said he expected the House to take up the rate cap next week. It could be attached to either the bank reform bill - which was nearing a vote late Thursday - or a funding measure for the Resolution Trust Corp.
Trade groups, bank card companies, and Treasury Secretary Nicholas Brady loudly protested the notion of price controls. Some observers, though, doubted that the Senate measure - limiting interest to 14%, well below the typical 18% or higher - would would survive political infighting over other parts of the banking bill.
Chase Manhattan Corp., which Keefe said could lose $385 million in revenue, might have to reduce its credit availability "as much as $15 billion" as well as cut back operations and employment, vice chairman Robert R. Douglass warned.
"We have gotten hundreds of calls from members this morning," Marcia Sullivan, counsel for the Consumer Bankers Association, said Thursday. "They are going wild."
Major Campaign in the Wings
Ms. Sullivan said the group intended to mount a major campaign to defeat the interest rate ceiling.
As adopted in a 74-to-19 Senate vote, the measure would limit credit card rates to four percentage points above the Internal Revenue Service's charge for late tax payments. That would put the limit currently at 14%.
The American Bankers Association's chief lobbyist, Edward L. Yingling, said a quick survey of members showed as many as half of credit card accounts would be unprofitable at the lower rate and have to be cut off. As many as 60 million accounts could be closed, he said.
Credit would be cut off from "all but an elite class of customers because banks would be forced to eliminate any semblance of risk in their portfolio, the ABA said. "History has shown that price controls, including interest rate caps, just don't work."
|Analogous to Usury Laws'
Patrick Forte, president of the Association of Financial Services Holding Companies, said the proposal is "analogous to the usury laws that S&Ls were encumbered by and resulted in many failures and expense to the taxpayers."
He rated the D'Amato initiative as "more likely than not" to survive.
But Thomas L. Ashley, president of the Association of Bank Holding Companies, said the D'Amato amendment would be "chopped out" of the banking bill when it is being reconciled by a House-Senate conference committee.
The Senate vote, he said, gave members an opportunity to vote on politically popular legislation with the expectation that the measure would never become law.
"It's a way of having it both ways, as we've seen many times in the past with Congress," said Mr. Ashley, a former congressman and a personal friend of President Bush.
Bush Backs D'Amato Version
Mr. Bush's statement on Tuesday that he would "like to see the credit card rates down" to stimulate consumer spending may have helped spark the support for Sen. D'Amato's amendment.
A few major banks have been offering credit cards with interest rates in the 13% to 14% range, but usually only to selected, creditworthy customers. On Wednesday, American Telephone & Telegraph Co. said it would accelerate a scheduled one-point drop on its MasterCard and Visa products, to 16.4% or 17.4%, by one month.
Keefe, Bruyette & Woods characterized the impact of the proposed cap as "devastating" to the nation's largest card-issuing banks. Citicorp, for example, would report a net loss of 93 cents a share in 1992 instead of the previously estimated $1.50 a share profit.
"Banks are free to call their cards and would likely do so in droves in a effort to upgrade the overall quality of their portfolios if the legislation were passed into law," Keefe's bulletin to clients said.
Rep. Esteban Torres, D-Calif., chairman of the House Banking subcommittee on consumer affairs, was canvassing members of his panel Thursday in an effort to schedule a vote on a measure sponsored by Rep. Charles Schumer, D-N.Y., to increase disclosure of credit card terms.
If the panel takes up that measure, other lawmakers may offer amendments to cap card rates. Chief among them in Rep. Frank Annunzio, D-Ill., who introduced a rate-cap measure Thursday. Mr. Torres may also seek a cap, according to congressional sources, and some Democrats said a it would fare well on the House floor.